Coverage opt-outs harder to come by

Cash incentives to switch to spouses' plans dwindling

SAN FRANCISCO (CBS.MW) -- As employers announce their new health-care decisions during open enrollment this fall, fewer are likely to include financial incentives for workers who drop coverage in favor of their spouses' health plans.

There is little data on how many employers use the incentives, known as opt-out credits, to lighten the load of their rapidly rising health-care costs by shifting workers onto other insurance plans.

But a recent survey found that while 28 percent of 540 large employers said they provide flexible credits for opting out, nearly half -- 47 percent -- said they had no interest in doing so, according to consulting firm Hewitt Associates.

The custom was more widely used prior to the double-digit premium hikes of the last three years, business and health experts said.

Then, more employers were inclined to give back a nominal cash award to workers who opted out of their company-sponsored plans instead of coordinating benefits with their spouse's plans, said Helen Darling, president of the Washington Business Group on Health, which represents 175 large employers.

"It is rare and getting more rare," Darling said. "The belief is... if (workers) have to pay enough, they're going to opt out anyway, so why would you give them money you don't have to give them?"

While employers still pick up about 75 percent of workers' health-care costs, they're passing on more of the price hikes in the form of higher premiums, co-pays and deductibles, which come out of the workers' pockets.

Families' costs for employer-sponsored health insurance will soar 13.9 percent this year, the biggest jump since 1990, according to a survey from the Kaiser Family Foundation and Health Research and Educational Trust. See full story.

Workers now pay on average $2,412 per year, or $201 a month, toward the premium for family coverage, which grew to an average total of $9,068 annually this year.

Less incentive to offer incentives

Because of workers' sticker shock, more companies have been dropping opt-out incentives than adding them in the last two years, said Tom Billet, a senior consultant with Watson Wyatt, a human resources consulting firm in Stamford, Conn.

"In the past, companies might have provided a $1,000 opt-out credit to not take the coverage, which would be a good deal if you had coverage somewhere else," Billet said.

"Now people pay so much for that coverage, they're looking at it and saying 'I don't need this. The value I'm going to get out of the coordination of benefits isn't equal to what I pay to have it. I'm not going to take it and don't need an incentive not to.'"

Still, one of the nation's largest employers, General Motors, isn't shelving its opt-out program. The automaker pays about $500 a year to salaried workers who decline enrollment because of other coverage, GM spokeswoman Doris Powers said. The policy hasn't changed in the last several years, but doesn't apply to the hourly and union-represented workers that make up the majority of its workforce.

The opt-out issue may be part of union contract negotiations, but it typically doesn't affect enough workers to overshadow key bargaining concerns such as overtime pay and outsourcing, said Paul Almeida, president of the AFL-CIO's department for professional employees, which represents 25 national unions covering 4 million white collar workers.

"With many employers, if you decline it you decline it," Almeida said." That's it. There's no reimbursement."

Where the savings go

If employers stand to gain several thousand dollars in unspent health-care costs by convincing an employee to go with another plan, workers should see a cut of the savings, said Lewis Maltby, president of the National Work Rights Institute in Princeton, N.J.

"If the employee is going to opt out, they ought to get paid. The employee shouldn't give up something for nothing," Maltby said.

"It's still more cost effective for an employer to give an employee an incentive to drop out even if they split the money evenly," he said, using $6,000 as an example. "Even if you split it with them, you still have a net savings of $3,000. You can't practically increase employee contributions by $3,000."

But Billet said that employers, already squeezed to provide benefits, view the prospect of opting out as more of a "cost avoidance."

"If the intent is to provide a plan to protect people from catastrophic financial losses, then I don't think you'd say that a cash return from that is someone's rightful money," Billet said.

"Historically, companies haven't provided opt-out credits to decline disability coverage or dental coverage or life insurance. They don't pay you to not take those benefits, so why should they pay you to not take health insurance?"

Leftover benefits almost always accrue to employers, who typically only offer cash to workers as a last resort, said Mark Rothstein, director of the Bioethics Institute at the University of Louisville School of Medicine.

"It's a whole system of cross-subsidization and this is just one way of subsidizing the pot," Rothstein said. "If you can get people off your tab and onto someone else's, that's great, but it's not going to go back to the employee."

If workers received a greater financial reward for opting out, employers may have to raise contributions for other workers even more dramatically to cover the difference, he said.

Compare plans

But workers are wise to compare their spouses' plans carefully before accepting cash to drop out of their own, or doing so without the financial incentive, Maltby said.

"There's some economic benefit to maintaining back-up coverage even if your employer has an excellent plan, which is one more reason that no one should drop for free," he said.

Likewise, employers also can gain by sharing the savings, Maltby said. "If you offer a quality health care plan and pay people who don't need it to turn it down, the employer gets the best of both worlds. They still have a powerful recruiting tool for people who don't have alternate insurance coverage, but they only spend the money for employees who actually need it."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.